PP=RBD

[craigr]

A really bad day was back in 2008 where people I knew were losing more than 1/3rd of their life savings 5-10% at a time in their funds. They had a lot in stocks and REITs because real-estate was red hot and easy money.

Really bad days were also in the early 2000s where other people I met were forced out of retirement and back to work after losing a tremendous amount in that stock market crash. They thought making money in stocks was easy and didn't own enough bonds or cash because they didn't want to miss out.

Really bad days were also this year where people I know that had a lot in gold/silver have taken huge losses because they didn't diversify. They thought owning stocks was a sucker's bet.

There are only two investors that make gains each year:

1) The Lucky.
2) The Liars.

When I see very low single digit losses in a portfolio I just don't worry about it. Having been put through the ringer in the past myself, if this is the worst it can get for the portfolio this year, I'm pretty content. I've seen a lot worse. If you can't take any investment losses at all, you should just be in 100% cash/annuity/etc. and absorb the inflation hit each year.

[buddtholomew]

Its fairly clear to me that a rise in equities is insufficient to buoy the portfolio when gold and treasuries are on the decline. Given that equities rise 7/10 years, the PP seems like a losing proposition. The PP trades equities for gold and has an AVG bond duration of IT. The PP and 60/40 comparison benefits one or the other depending on how gold does. So the question is what percent of your overall portfolio should be invested in gold? Mine is 10%, unfortunately it is all in taxable so the losses in this account are more pronounced.

Hey Budd, that last part confused me a bit. Wouldn't losing assets in a taxable account be a benefit if you sold and harvested those losses?

Investments in my taxable account are not earmarked for retirement. I do intend to TLH, but the absolute dollars available are still reduced when selling the investment.

[LC475]

I wish Google had put the time scale in there as a image parameter.  Longer time frames would be more useful.

[Pointedstick]

Can I sue Harry Browne to make up the difference if it fails to meet that 10% guarantee?

Seriously, I looked up yesterday's chart since it was easy thanks to Adam, Prince of Eternia, whoops, I mean Pointedstick, and it looks like stocks went down less than gold and bonds, and so I would have been better off if I had waited until today to make the switch to the PP instead of earlier this week.  But, I still feel good about it.  Perfect timing is impossible.

Nevertheless, I guess it's my irrational deep animal instincts for believing in timing, but I still like to think that I'm timing my entrance into the PP pretty well.  It's gone down two years in a row!  This is fantastic!  18 months is the longest down-time Harry and John could find in the computer back-testing when they were inventing the portfolio, according to the radio show.  So this 24 month downturn (or however long it is now) is a super sale!  Last time it went down in 1981, afterwards it shot back up, way more than the typical return one should expect from the PP.  So it's due to shoot up, right?

It was actually up 6.5% in 2012. The YTD return for 2013 has been about -2.7%, so it's still in positive territory for the 24-month period. 4% or so over two years is still not great performance, but it's hardly some kind of earth-shattering disaster (Check it out for yourself at http://www.etfreplay.com/combine.aspx).

And after all, that's why we're here: to avoid earth-shattering financial disasters.

I just don't understand what's so distressing about a 2.7% loss over 11 months. The stock market can deliver this kind of loss in one day. I mean, everyone in the PP right now was presumably in some other allocation before, which I imagine had much worse years than -2.7%, right? Those portfolios may have had greater upside, but you can't kid yourself about the drawdowns. If you're upset about -2.7% in one year, how could you possibly handle something whose average "bad year" would be more like -10% or -15%, even if a good year was +25%?

[LC475]

It was actually up 6.5% in 2012.

Oh, I see that you're right.  I somehow had the impression from these forums that it had been down two years in a row now.  Seems like I've read that multiple times.

Maybe you guys are all just Negative Guses! 

This portfolio's best days are over!  Time to bail out!

[dragoncar]

Budd,

I'm not going to pretend that the PP has performed admirably this past year in doling out returns.  But it has done admirably in keeping away steep losses in a year during which gold and bonds are both getting hammered.  As such it's doing it's job of making sure no individual components of the portfolio can drag the entire thing down.  I rather take encouragement from the fact that it's done as well as it has in a year where gold has dropped so much.

I know you often compare it to the 60/40 portfolio and I will admit that portfolio has done better this year.  We are even at the point now where if you go back to 2007 you'll find the CAGR of the two portfolios is close to the same at this point.  The difference being that the largest draw down in the PP is much smaller than that of the 60/40 portfolio in 2008.

I personally feel that both portfolios will average out to around the same CAGR (7-8%) over long periods of time, but the PP will do that without the significant draw downs of the 60/40.

I find it interesting that you view the PP's inability to keep up with the S&P as a failure, but it's not a failure when it fails to keep up with Gold or Bonds, or Cash?  If you choose the S&P as the benchmark then it is probable that any time the S&P is carrying the portfolio, it will be missing the mark.  If you use the 60/40 portfolio it's the same case, whenever stocks are surging the 60/40 will be the winner, but you take on more risk for what I feel to be similar returns.

That's just my view on it Budd.  I agree it must be frustrating for you, and I apologize for taking advantage of your angst for the sake of humor.  I just wanted to point out that if you lay a chart of 60/40 over the PP, you'll see the returns are close to the same, but the PP has smaller swings.  I feel that's worth staying put through the bad times.  A single bad year, I don't think a bad portfolio makes.

Dragon J.

This guy is the bomb, and I'm not just saying that because we are both dragons

[DragonJoey3]

Its fairly clear to me that a rise in equities is insufficient to buoy the portfolio when gold and treasuries are on the decline. Given that equities rise 7/10 years, the PP seems like a losing proposition. The PP trades equities for gold and has an AVG bond duration of IT. The PP and 60/40 comparison benefits one or the other depending on how gold does. So the question is what percent of your overall portfolio should be invested in gold? Mine is 10%, unfortunately it is all in taxable so the losses in this account are more pronounced.

So Equities may do well 7 out of 10 years, but some of the bad years can be really bad.  It's really a matter of how much risk you are willing to take, but I don't think anyone could make the argument that the PP takes on MORE risk than the 60/40 plan.  I think the 25% in gold is an good amount to have and it keeps the portfolio very stable.

I always like to come up from these discussions by reminding everyone of the #1 rule of financial safety, which is that your portfolio is to preserve your wealth (manage risk) not make you rich.  Ultimately the best way you can get better returns, is to spend less and make more.  When it comes to managing risk I think the PP and the 60/40 are both good options.  Certainly better than stock picking with a roulette wheel.

[DragonJoey3]

Budd,

I'm not going to pretend that the PP has performed admirably this past year in doling out returns.  But it has done admirably in keeping away steep losses in a year during which gold and bonds are both getting hammered.  As such it's doing it's job of making sure no individual components of the portfolio can drag the entire thing down.  I rather take encouragement from the fact that it's done as well as it has in a year where gold has dropped so much.

I know you often compare it to the 60/40 portfolio and I will admit that portfolio has done better this year.  We are even at the point now where if you go back to 2007 you'll find the CAGR of the two portfolios is close to the same at this point.  The difference being that the largest draw down in the PP is much smaller than that of the 60/40 portfolio in 2008.

I personally feel that both portfolios will average out to around the same CAGR (7-8%) over long periods of time, but the PP will do that without the significant draw downs of the 60/40.

I find it interesting that you view the PP's inability to keep up with the S&P as a failure, but it's not a failure when it fails to keep up with Gold or Bonds, or Cash?  If you choose the S&P as the benchmark then it is probable that any time the S&P is carrying the portfolio, it will be missing the mark.  If you use the 60/40 portfolio it's the same case, whenever stocks are surging the 60/40 will be the winner, but you take on more risk for what I feel to be similar returns.

That's just my view on it Budd.  I agree it must be frustrating for you, and I apologize for taking advantage of your angst for the sake of humor.  I just wanted to point out that if you lay a chart of 60/40 over the PP, you'll see the returns are close to the same, but the PP has smaller swings.  I feel that's worth staying put through the bad times.  A single bad year, I don't think a bad portfolio makes.

Dragon J.

This guy is the bomb, and I'm not just saying that because we are both dragons

Thanks , your awesome too.  And as much as we all loathe his complaints, you have to admit it would be quiet around here without Budd too!

[frugal]

A really bad day was back in 2008 where people I knew were losing more than 1/3rd of their life savings 5-10% at a time in their funds. They had a lot in stocks and REITs because real-estate was red hot and easy money.

Really bad days were also in the early 2000s where other people I met were forced out of retirement and back to work after losing a tremendous amount in that stock market crash. They thought making money in stocks was easy and didn't own enough bonds or cash because they didn't want to miss out.

Really bad days were also this year where people I know that had a lot in gold/silver have taken huge losses because they didn't diversify. They thought owning stocks was a sucker's bet.

There are only two investors that make gains each year:

1) The Lucky.
2) The Liars.

When I see very low single digit losses in a portfolio I just don't worry about it. Having been put through the ringer in the past myself, if this is the worst it can get for the portfolio this year, I'm pretty content. I've seen a lot worse. If you can't take any investment losses at all, you should just be in 100% cash/annuity/etc. and absorb the inflation hit each year.

+1



HOLD and rebalance!

[WhiteDesert]

I just don't understand what's so distressing about a 2.7% loss over 11 months. The stock market can deliver this kind of loss in one day.

Seriously.
When the equities markets have a "bad" day, my VP usually loses somewhere around half of what the S&P500 loses. That portfolio experienced greater than 2.7% drops three times in the month of August 2011 alone:

8/4/11: -3.42%
8/8/11: -4.49%
8/18/11: -2.98%

Remembering these data doesn't make it any less annoying for me to watch my PP get "clobbered" on those (more infrequent than I would like) days when the rising asset(s) fail to buoy the portfolio against the one or ones that tank--but it helps me keep it in perspective.